Generics test anti-kickback statute

Wholesaler preferred generics programs encourage price competition that benefits Medicare and Medicaid programs and, therefore, do not violate anti-kickback statutes, according to an advisory opinion released by the Health and Human Services Office of the Inspector General in April.

The advisory opinion was a response to a query from a generic manufacturer that had asked whether certain pharmaceutical discount pricing arrangements it wished to pursue were subject to sanction under the anti-kickback statute of the Social Security Act.

The anti-kickback statute makes it a criminal offense to knowingly and willingly offer, pay, solicit or receive remuneration to induce the referral of business covered by a Federal health care program. "In other words," the Inspector General noted, "the statute prohibits payments made purposefully to induce referrals of business payable by a Federal health care program."

Specifically, the generics manufacturer proposed to enter into contracts with pharmaceutical wholesalers for the purchase of multisource generic pharmaceuticals at a fixed percentage price reduction.

In return, the wholesalers, which would include retail pharmacies, hospitals and other health care providers, would provide limited promotional support for the purchased products.

The promotional activities of the wholesalers would be limited to making informational phone calls about the products to customers, including advertising materials relating to the products in mailings and deliveries to customers, featuring advertisements for the products in catalogs and other sales materials and featuring the products in the wholesaler's generic source catalog and trade show promotions.

But because the wholesalers would sell products to Federal program beneficiaries and submit claims for program reimbursement, the manufacturer suspected its agreement could be subject to federal sanction.

The Inspector General ruled, however, that the wholesaler preferred generic program did not violate the anti-kickback statute, because it is "substantially similar to the arrangements protected by the current discount safe harbor," the opinion stated. "Even though the wholesalers do submit claims to Medicare or Medicaid for these purchases, [the generic manufacturer's] disclosures will ensure that discounts are properly reported and reflected in the Medicaid rebate."

In particular, it also noted that the generic manufacturer would include any rebates paid under the arrangement in its calculations of "average manufacturer price," or "best price" under the Medicaid drug rebate program. PR